The $2 Billion Break-Up Fee in Sotheby’s Merger Agreement

By

Lina Saigol

Updated August 23, 2019 / Original August 22, 2019

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Sotheby's corporate headquarters in New York City.
Photograph by Spencer Platt/Getty Images

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Sotheby’s could stand to receive almost $2bn in damages if French media tycoon
Patrick Drahi
’s $3.7 billion takeover bid of the auction house falls through for any reason other than lack of financing.

The payment, disclosed in
Sotheby’s
proxy statement filed with the Securities and Exchange Commission on August 7, is designed to compensate the target for its time and effort in facilitating a transaction.

The all-cash $57-a-share offer represented a 61% premium to Sotheby’s share price on the last trading day before the deal was announced, valuing the company at $3.7bn, including debt. Drahi has made the offer through BidFair USA, a special purpose vehicle.

According to the merger documents, ‘an affiliate’ of BidFair USA will be providing the payment of up to $1.92 billion.

Sotheby’s needs acceptance from 50% of its shareholders due to vote on the deal on Sept. 5.

RWC Partners, the U.K. fund manager which holds a 2.5% stake in Sothebys, raised several concerns about the deal, including its price. The objections were made in a letter to the board of Sotheby’s after the auction house filed its proxy statement.

The documents revealed that Linus Cheung, an independent director of Sotheby’s, suggested the auction house was valued at $100 a share.

A Sotheby’s spokesperson said: “As RWC was told in response to its letter, a close reading of the proxy shows that all questions raised are unfounded, and Sotheby’s Board of Directors continues to enthusiastically support the proposed merger with Patrick Drahi.”

The merger documents also include standard break-fees. If Drahi abandons his deal specifically because he cannot raise the debt financing, which is being underwritten by
BNP Paribas,
then he has to pay Sotheby’s $221.7m.

However, if Sotheby’s accepts a rival bid before December 13, 2019, it will have to pay Drahi $110.9m plus up to $4m in expenses.

The acquisition of Sotheby’s would be Drahi’s second deal in the US this year. In April,
Altice USA
snapped up streaming news network Cheddar for $200m. Drahi made his first major foray into the US in 2015 with the $17.7bn acquisition of Cablevision to become the fourth-biggest cable provider in the country.

Corrections & Amplifications

The shareholders vote is on Sept. 5, not Sept. 2, as the article originally stated.

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